What changed in this filing

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Item 1. Financial Statements

2023-10-26 compared with 2023-07-27 · 294 added, 248 removed, 1508 unchanged (26% of the section changed)

4 unchanged sentences

(in millions of dollars, except per share data)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net revenues 1 & 2 (Note 14)

26,127 23,610

Cost of sales (Note 3) 6,266 5,256

Cost of sales 3 (Notes 3 & 6)

Gross profit 16,696 15,419

12 unchanged sentences

Diluted earnings per share $ 3.61 $ 4.27

(1) Includes net revenues from related parties of $ 1,774 million and $ 1,547 million for the six months ended June 30, 2023 and 2022, respectively

(2) Net of excise tax on products of $ 24,048 million and $ 24,172 million for the six months ended June 30, 2023 and 2022, respectively

(3) Includes an impairment charge for goodwill and other intangibles of $ 680 million and a charge of $ 204 million for the South Korea indirect tax charge for the six months ended June 30, 2023, respectively.

(1) Includes net revenues from related parties of $ 2,631 million and $ 2,634 million for the nine months ended September 30, 2023 and 2022, respectively

(2) Net of excise tax on products of $ 37,140 million and $ 37,028 million for the nine months ended September 30, 2023 and 2022, respectively

(3) Includes an impairment charge for other intangibles of $ 112 million for the nine months ended September 30, 2022.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net

(4) Includes an impairment charge for goodwill and other intangibles of $ 680 million and a charge of $ 204 million for the South Korea indirect tax charge for the nine months ended September 30, 2023, respectively.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net and Note 10.

5 unchanged sentences

(in millions of dollars, except per share data)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Net revenues 1 & 2 (Note 14)

Cost of sales (Note 3) 3,228 2,648

Cost of sales 3 (Notes 3 & 6)

Gross profit 5,976 5,097

12 unchanged sentences

Diluted earnings per share $ 1.32 $ 1.34

(1) Includes net revenues from related parties of $ 901 million and $ 869 million for the three months ended June 30, 2023 and 2022, respectively

(2) Net of excise taxes of $ 12,749 million and $ 12,577 million for the three months ended June 30, 2023 and 2022, respectively

(3) Includes an impairment charge for goodwill and other intangibles of $ 680 million and a charge of $ 204 million for the South Korea indirect tax charge for the three months ended June 30, 2023, respectively.

(1) Includes net revenues from related parties of $ 857 million and $ 1,087 million for the three months ended September 30, 2023 and 2022, respectively

(2) Net of excise taxes of $ 13,092 million and $ 12,856 million for the three months ended September 30, 2023 and 2022, respectively

(3) Includes an impairment charge for other intangibles of $ 112 million for the three months ended September 30, 2022.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net and Note 10.

Contingencies.

Goodwill and Other Intangible Assets, net

See notes to condensed consolidated financial statements.

3 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Net earnings $ 5,955 $ 7,033

2 unchanged sentences

Unrealized gains (losses), net of income taxes of $( 12 ) in 2023 and $( 340 ) in 2022

( 669 ) ( 352 )

(Gains)/losses transferred to earnings, net of income taxes of $ 0 in 2023 and 2022

16 unchanged sentences

(in millions of dollars)

For the Three Months Ended June 30,

For the Three Months Ended September 30,

Net earnings $ 2,171 $ 2,222

20 unchanged sentences

(in millions of dollars)

September 30,

2023 December 31,

15 unchanged sentences

TOTAL ASSETS $ 62,927 $ 61,681

(1) Includes trade receivables from related parties of $ 709 million and $ 688 million as of June 30, 2023, and December 31, 2022, respectively (less allowances of $ 29 million as of June 30, 2023 and $ 7 million as of December 31, 2022).

(1) Includes trade receivables from related parties of $ 655 million and $ 688 million as of September 30, 2023, and December 31, 2022, respectively (less allowances of $ 43 million as of September 30, 2023 and $ 7 million as of December 31, 2022).

For further details, see Note 14.

5 unchanged sentences

(in millions of dollars, except share data)

September 30,

2023 December 31,

35 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

16 unchanged sentences

Capital expenditures ( 1,010 ) ( 730 )

Altria Group, Inc.

agreement (Note 2) ( 1,775 ) —

Equity investments ( 111 ) ( 20 )

2 unchanged sentences

Net cash used in investing activities ( 3,030 ) ( 151 )

(1) Includes amounts from related parties of $( 134 ) million and $( 242 ) million for June 30, 2023 and 2022, respectively

(1) Includes amounts from related parties of $( 130 ) million and $( 226 ) million for September 30, 2023 and 2022, respectively

See notes to condensed consolidated financial statements.

3 unchanged sentences

(in millions of dollars)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

17 unchanged sentences

Balance at end of period $ 3,034 $ 5,374

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 20 million and $ 7 million as of June 30, 2023 and 2022, respectively, and $ 10 million and $ 4 million as of December 31, 2022 and 2021, respectively, which were included in other current assets in the condensed consolidated balance sheets.

(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $ 17 million and $ 6 million as of September 30, 2023 and 2022, respectively, and $ 10 million and $ 4 million as of December 31, 2022 and 2021, respectively, which were included in other current assets in the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Six Months Ended June 30, 2023 and 2022

For the Nine Months Ended September 30, 2023 and 2022

(in millions of dollars, except per share amounts)

16 unchanged sentences

Purchase of subsidiary shares from noncontrolling interests (Note 2) ( 30 ) ( 171 ) ( 10 ) ( 211 )

Balances, June 30, 2022 $ — $ 2,165 $ 33,755 $ ( 9,043 ) $ ( 35,921 ) $ 1,784 $ ( 7,260 )

Balances, September 30, 2022 $ — $ 2,204 $ 33,865 $ ( 9,288 ) $ ( 35,918 ) $ 1,734 $ ( 7,403 )

Balances, January 1, 2023 $ — $ 2,230 $ 34,289 $ ( 9,559 ) $ ( 35,917 ) $ 2,646 $ ( 6,311 )

6 unchanged sentences

Sale (purchase) of subsidiary shares to/(from) noncontrolling interests (Note 2) ( 6 ) 180 ( 831 ) ( 657 )

Balances, June 30, 2023 $ — $ 2,240 $ 33,893 $ ( 10,045 ) $ ( 35,791 ) $ 1,743 $ ( 7,960 )

Balances, September 30, 2023 $ — $ 2,253 $ 33,919 $ ( 9,817 ) $ ( 35,788 ) $ 1,727 $ ( 7,706 )

See notes to condensed consolidated financial statements.

2 unchanged sentences

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2023 and 2022

For the Three Months Ended September 30, 2023 and 2022

(in millions of dollars, except per share amounts)

7 unchanged sentences

Interests Total

Balances, April 1, 2022 $ — $ 2,118 $ 33,468 $ ( 9,760 ) $ ( 35,924 ) $ 1,895 $ ( 8,203 )

Balances, July 1, 2022 $ — $ 2,165 $ 33,755 $ ( 9,043 ) $ ( 35,921 ) $ 1,784 $ ( 7,260 )

Net earnings 2,087 135 2,222

4 unchanged sentences

Dividends paid to noncontrolling interests ( 111 ) ( 111 )

Balances, June 30, 2022 $ — $ 2,165 $ 33,755 $ ( 9,043 ) $ ( 35,921 ) $ 1,784 $ ( 7,260 )

Balances, April 1, 2023 $ — $ 2,188 $ 34,303 $ ( 9,614 ) $ ( 35,801 ) $ 1,871 $ ( 7,053 )

Balances, September 30, 2022 $ — $ 2,204 $ 33,865 $ ( 9,288 ) $ ( 35,918 ) $ 1,734 $ ( 7,403 )

Balances, July 1, 2023 $ — $ 2,240 $ 33,893 $ ( 10,045 ) $ ( 35,791 ) $ 1,743 $ ( 7,960 )

Net earnings 2,054 117 2,171

5 unchanged sentences

Sale (purchase) of subsidiary shares to/(from) noncontrolling interests ( 27 ) 1 ( 2 ) ( 28 )

Balances, June 30, 2023 $ — $ 2,240 $ 33,893 $ ( 10,045 ) $ ( 35,791 ) $ 1,743 $ ( 7,960 )

Balances, September 30, 2023 $ — $ 2,253 $ 33,919 $ ( 9,817 ) $ ( 35,788 ) $ 1,727 $ ( 7,706 )

See notes to condensed consolidated financial statements.

8 unchanged sentences

and its subsidiaries.

Smoke-free products ("SFPs") is the term PMI primarily uses to refer to all of its products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine.

Smoke-free products (also referred to herein as "SFPs") is the term PMI primarily uses to refer to all of its products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine.

In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

57 unchanged sentences

The cash paid in connection with the additional purchases of the noncontrolling interests after the acquisition date and through December 31, 2022 amounted to $ 1,495 million and was included in financing activities in the consolidated statements of cash flows for the year ended December 31, 2022.

In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100 % of the shares in Swedish Match on February 17, 2023.

Cash paid in connection with such legal title, together with an immaterial amount attributable to open market purchases that were executed in December 2022 but settled in January 2023, amounted to $ 883 million and was included in financing activities in the condensed consolidated statements of cash flows for the six months ended June 30, 2023.

While we have paid the referenced amounts and have acquired legal title to the shares, the redemption process will not be complete under the Swedish Companies Act until a final redemption price is determined by an arbitral tribunal.

This process may take 6 to 12 months to complete, but we believe the likelihood it will result in additional payments to be remote.

In accordance with the Swedish Companies Act, PMI subsequently exercised its right to initiate arbitral proceedings to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100 % of the shares in Swedish Match on February 17, 2023.

While PMI has paid the referenced amounts and has acquired legal title to the shares, the redemption process will not be complete under the Swedish Companies Act until a final redemption price is determined by an arbitral tribunal.

On September 12, 2023, the arbitral tribunal determined the final redemption price to be Swedish krona (SEK) 115.07 , which is unchanged from the SEK 115.07 that PMI paid per share in connection with obtaining legal title to the shares.

This final redemption price is subject to appeal by the remaining minority shareholders within 60 days.

Pending appeal, PMI expects this process to be completed in the fourth quarter of 2023 and believes that the likelihood of additional payments to be made is remote.

Swedish Match is a market leader in oral nicotine delivery with a significant presence in the United States market.

3 unchanged sentences

Notes to Condensed Consolidated Financial Statements

Due to the timing of the acquisition, and limited access to detailed and disaggregated financial information of Swedish Match, the purchase price allocation is preliminary and it is likely subject to change, including the valuation of property, plant and equipment, intangible assets, income taxes and legal contingencies among other items.

During the second quarter of 2023, PMI made certain measurement period adjustments to the purchase price allocation to reflect facts and circumstances in existence as of the acquisition date, which resulted in an increase in goodwill of $ 109 million.

The increase was due to a decrease in other current assets of $ 109 million.

PMI is still assessing information received, as of the acquisition date, and expects to complete this process by the end of the measurement period in November 2023.

The following table summarizes the preliminary purchase price allocation for the fair value of assets acquired and liabilities assumed as of the acquisition date:

The table below summarizes the preliminary purchase price allocation for the fair value of assets acquired and liabilities assumed as of the acquisition date, including the measurement period adjustments made for the first nine months of 2023.

PMI is still assessing information received as of the acquisition date and expects to complete the allocation by the end of the measurement period in November 2023.

(in millions)

Recognized as of the acquisition date Measurement Period Adjustments Recognized as of September 30, 2023

Cash and cash equivalents $ 484 $ — $ 484

18 unchanged sentences

The total fair value step-up adjustment for inventories was $ 146 million, of which $ 125 million was recognized in cost of sales in the fourth quarter of 2022 and the remaining balance in the first quarter of 2023.

The fair value of long-term debt was determined using readily available market prices as of the acquisition date and the total purchase price adjustment of $( 102 ) million is being amortized as an increase to interest expense, net over the lives of the related debt.

The fair value of long-term debt was primarily determined using readily available market prices as of the acquisition date and the total purchase price adjustment of $( 107 ) million is being amortized as an increase to interest expense, net over the lives of the related debt.

Goodwill is primarily attributable to future growth opportunities, anticipated synergies in the U.S.

11 unchanged sentences

Notes to Condensed Consolidated Financial Statements

The significant assumptions used in determining the preliminary fair values of the identifiable intangible assets included royalty rates, revenue growth rates, profit margins, customer attrition rate and discount rates.

Trademarks primarily relate to $ 3,133 million for the ZYN trademark, which has been determined to have an indefinite life due to the fast growth and the leading position of the brand in the U.S.

All other trademarks have been preliminarily determined to have a 20 years useful life.

The preliminary fair values of the trademarks have been determined using the relief from royalty method supported by revenue growth rates assumptions and royalty rates benchmarking analysis at product category level (smoke-free brands, including ZYN , cigar brands and lights).

In 2023, during the measurement period, the useful life, revenue growth rate and the royalty rate of each individual trademark will be reassessed to determine its final purchase price.

All other trademarks have been determined to have a useful life ranging between 20 - 30 years.

The trademarks have been valued using the relief from royalty method supported by revenue growth rate assumptions and royalty rates disaggregated at the individual trademark level.

Developed technology, including patents, relates to the nicotine pouch technology of $ 113 million.

The patent has been assigned a useful life of 10 years, which is in line with the patent's protection.

The preliminary fair value of the patent has been determined using the relief from royalty method.

Customer relationships have been valued separately by geographic locations, namely for the U.S.

market, Scandinavia, and other markets using the multiple periods excess earnings method, preliminarily reflecting a general market attrition rate for retail and revenue allocation and profit margin assumptions by customer type, which will be further assessed during the measurement period.

These patents have been assigned a useful life of 10 years, which is in line with their protection period and have been valued using the comparable transactions and income methods.

Customer relationships have been valued by categories of customers and geographic locations, namely the U.S.

market, Scandinavia, and other markets using the multiple periods excess earnings method.

The significant assumptions included customer attrition rates disaggregated at the customer category level, the revenue growth rates, as well as profit margins.

PMI consolidated statements of earnings for the year ended December 31, 2022, include $ 316 million of net revenues and $( 26 ) million of net losses associated with the results of operations of Swedish Match from the acquisition date to December 31, 2022.

5 unchanged sentences

As a result, these assets were accounted for as assets held for sale and included within other current assets and other accrued liabilities in PMI’s condensed consolidated balance sheets at March 31, 2023 and December 31, 2022.

PMI subsequently sold SMDL on June 30, 2023 and the transaction did not have a material impact on the condensed consolidated statements of earnings for the six months and three months ended June 30, 2023.

PMI subsequently sold SMDL on June 30, 2023 and the transaction did not have a material impact on the condensed consolidated statements of earnings for the nine months ended September 30, 2023.

The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of PMI and Swedish Match.

21 unchanged sentences

as of April 30, 2024.

As a result of PMI reacquiring these rights, effective May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S.

As a result of PMI reacquiring these rights, effective May 1, 2024, PMI will hold the full rights to commercialize IQOS in the U.S.

As part of the agreement, PMI agreed to pay a total cash consideration of $ 2.7 billion, with $ 1.0 billion paid at the inception of the agreement and the remaining $ 1.7 billion (plus interest, at a per annum rate equal to six percent ( 6 %)), to be paid by July 2023 at the latest.

The cash consideration paid at the inception of the agreement of $ 1.0 billion has been accounted for within other assets in PMI’s condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022.

The remaining consideration of $ 1.7 billion plus interest was paid to Altria on July 14, 2023 and will be accounted for within other assets in PMI's condensed consolidated balance sheets as of September 30, 2023.

The cash consideration paid at the inception of the agreement of $ 1.0 billion has been accounted for within other assets in PMI’s condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022.

The remaining consideration of $ 1.7 billion plus interest was paid to Altria on July 14, 2023 and has been accounted for within other assets in PMI's condensed consolidated balance sheets as of September 30, 2023.

PMI will finalize the accounting for this transaction by assigning the consideration to the respective assets in May 2024, when PMI can exercise its ability to commercialize IQOS in the U.S.

War in Ukraine:

Since the onset of the war in Ukraine in February 2022, PMI's main priority has been the safety and security of its more than 1,300 employees and their families in the country.

Since the onset of the war in Ukraine in February 2022, PMI's main priority has been the safety and security of its employees and their families in the country.

PMI temporarily suspended its commercial and manufacturing operations in Ukraine, including the closing of its factory in Kharkiv at the end of February 2022, in order to preserve the safety of its employees.

1 unchanged sentence

Production at the factory in Kharkiv remains suspended.

While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of June 30, 2023, PMI is unable to estimate the information required to perform impairment analyses (i.e., forecast of revenues, manufacturing and commercial plans).

While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of September 30, 2023, PMI is unable to estimate the information required to perform impairment analyses (i.e., forecast of revenues, manufacturing and commercial plans).

PMI is not aware of any major damage to its production facilities, inventories or other assets in Ukraine.

As a result, PMI has not recorded an impairment of long-lived assets.

As of June 30, 2023, PMI’s Ukrainian operations had approximately $ 497 million in total assets, excluding intercompany balances.

As of September 30, 2023, PMI’s Ukrainian operations had approximately $ 500 million in total assets, excluding intercompany balances.

These total assets included $ 82 million, $ 350 million and $ 28 million in receivables, inventories and property, plant and equipment, respectively.

2 unchanged sentences

PMI is continuously assessing the evolving situation in Russia, including recent regulatory constraints in the market that entail very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities, and restrictions resulting from international regulations.

As a result of PMI continuing operations within Russia as of June 30, 2023, it has not recorded an impairment of long-lived and other assets.

However, PMI recorded specific asset write downs as referred to in the table below.

As a result of PMI continuing operations within Russia as of September 30, 2023, it has not recorded an impairment of long-lived and other assets.

However, PMI recorded specific asset write downs in 2022 as referred to in the table below.

PMI’s Russian operations as of September 30, 2023 had approximately $ 2.4 billion in total assets, excluding

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

Russian operations as of June 30, 2023 had approximately $ 2.4 billion in total assets, excluding intercompany balances.

intercompany balances.

These total assets included $ 677 million, $ 411 million, $ 838 million, $ 242 million and $ 158 million in cash (primarily held in local currency), receivables, inventories, property, plant and equipment and goodwill, respectively.

In addition, there was approximately $ 1,132 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of June 30, 2023.

During the six months and three months ended June 30, 2023, PMI did not record any material charges related to the war in Ukraine.

During the six months and three months ended June 30, 2022, PMI recorded in its condensed consolidated statements of earnings pre-tax charges related to circumstances driven by the war as follows:

(in millions) For the Six Months Ended June 30, 2022 For the Three Months Ended June 30, 2022

In addition, there was approximately $ 1,343 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of September 30, 2023.

During the nine months and three months ended September 30, 2023 and 2022, PMI recorded in its condensed consolidated statements of earnings pre-tax charges related to circumstances driven by the war as follows:

(in millions) For the Nine Months Ended September 30, 2023 For the Nine Months Ended September 30, 2022

Cost of sales Marketing, administration and research costs Total Cost of sales Marketing, administration and research costs Total

2 unchanged sentences

Total $ 11 $ 8 $ 19 $ 46 $ 82 $ 128

1 The 2023 pre-tax charges were primarily due to the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees.

The 2022 pre-tax charges were primarily due to an inventory write-down, additional allowance for receivables and the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees.

2 The pre-tax charges were primarily due to machinery and inventory write downs related to the commercial decisions noted above.

(in millions) For the Three Months Ended September 30, 2023 For the Three Months Ended September 30, 2022

Cost of sales Marketing, administration and research costs Total Cost of sales Marketing, administration and research costs Total

$ 11 $ 8 $ 19 $ 3 $ 5 $ 8

Russia — — — ( 3 ) 1 ( 2 )

Total $ 11 $ 8 $ 19 $ — $ 6 $ 6

1 The pre-tax charges were primarily due to PMI’s humanitarian efforts, which includes salary continuation for its employees.

PMI will continue to monitor the situation as it evolves and will determine if further charges are needed.

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Up to 25 million shares of PMI’s common stock may be issued under the 2022 Plan.

At June 30, 2023, shares available for grant under the 2022 Plan were 22,146,010 .

At September 30, 2023, shares available for grant under the 2022 Plan were 22,165,030 .

In May 2017, PMI’s shareholders approved the Philip Morris International Inc.

2 unchanged sentences

Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan.

At June 30, 2023, shares available for grant under the plan were 876,226 .

At September 30, 2023, shares available for grant under the plan were 876,226 .

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Restricted share unit (RSU) awards

During the six months ended June 30, 2023 and 2022, shares granted to eligible employees and the weighted-average grant date fair value per share related to RSU awards were as follows:

During the nine months ended September 30, 2023 and 2022, shares granted to eligible employees and the weighted-average grant date fair value per share related to RSU awards were as follows:

Granted Weighted-Average Grant Date Fair Value Per RSU Award Granted

1 unchanged sentence

2022 1,579,680 $ 104.96

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Compensation expense related to RSU awards was as follows:

Compensation Expense Related to RSU Awards

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 $ 124 $ 38

2022 $ 109 $ 35

As of June 30, 2023, PMI had $ 240 million of total unrecognized compensation cost related to non-vested RSU awards.

As of September 30, 2023, PMI had $ 199 million of total unrecognized compensation cost related to non-vested RSU awards.

The cost is recognized over the original restriction period of the awards, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58 .

During the six months ended June 30, 2023, 1,346,307 RSU awards vested.

During the nine months ended September 30, 2023, 1,421,086 RSU awards vested.

The grant date fair value of all the vested awards was approximately $ 124 million.

The total fair value of RSU awards that vested during the six months ended June 30, 2023 was approximately $ 135 million.

The total fair value of RSU awards that vested during the nine months ended September 30, 2023 was approximately $ 143 million.

Performance share unit (PSU) awards

During the six months ended June 30, 2023 and 2022, PMI granted PSU awards to certain executives.

During the nine months ended September 30, 2023 and 2022, PMI granted PSU awards to certain executives.

The PSU awards require the achievement of certain performance metrics, which are predetermined at the time of grant, typically over a three-year performance cycle.

The performance metrics for such PSU's granted during the six months ended June 30, 2023 and 2022 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis ( 40 % weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate ( 30 % weight), and a Sustainability Index, which consists of two drivers:

The performance metrics for such PSU's granted during the nine months ended September 30, 2023 and 2022 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis ( 40 % weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate ( 30 % weight), and a Sustainability Index, which consists of two drivers:

• Product Sustainability ( 20 % weight) measuring progress on PMI's efforts to maximize the benefits of smoke-free products, purposefully phase out cigarettes, seek net positive impact in wellness and healthcare, and reduce post-consumer waste;

5 unchanged sentences

At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned.

During the six months ended June 30, 2023 and 2022, shares granted to eligible employees and the grant date fair value per share related to PSU awards were as follows:

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

During the nine months ended September 30, 2023 and 2022, shares granted to eligible employees and the grant date fair value per share related to PSU awards were as follows:

Number of Shares Granted Weighted-

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The grant date fair value of the PSU awards subject to the other performance factors was determined by using the market price of PMI’s stock on the date of the grant.

The grant date fair value of the PSU market-based awards subject to the TSR

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

performance factor was determined by using the Monte Carlo simulation model.

The grant date fair value of the PSU market-based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model.

The following assumptions were used to determine the grant date fair value of the PSU awards subject to the TSR performance factor:

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Compensation Expense Related to PSU Awards

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 $ 51 $ 6

2022 $ 44 $ 13

As of June 30, 2023, PMI had $ 60 million of total unrecognized compensation cost related to non-vested PSU awards.

As of September 30, 2023, PMI had $ 49 million of total unrecognized compensation cost related to non-vested PSU awards.

The cost is recognized over the performance cycle of the awards, or upon death, disability or reaching the age of 58 .

During the six months ended June 30, 2023, 902,232 PSU awards vested.

During the nine months ended September 30, 2023, 902,232 PSU awards vested.

The grant date fair value of all the vested awards was approximately $ 83 million.

The total fair value of PSU awards that vested during the six months ended June 30, 2023 was approximately $ 91 million.

The total fair value of PSU awards that vested during the nine months ended September 30, 2023 was approximately $ 91 million.

Benefit Plans:

5 unchanged sentences

retired employees are covered through local government plans.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Pension and other employee benefit costs per the condensed consolidated statements of earnings consisted of the following:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

3 unchanged sentences

Total pension and other employee benefit costs $ 36 $ 16 $ 8 $ 7

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Pension Plans

1 unchanged sentence

Net periodic pension cost consisted of the following:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

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PMI makes, and plans to make, contributions, to the extent that they are tax deductible and meet specific funding requirements of its funded pension plans.

Employer contributions of $ 72 million were made to the pension plans during the six months ended June 30, 2023.

Employer contributions of $ 96 million were made to the pension plans during the nine months ended September 30, 2023.

Currently, PMI anticipates making additional contributions during the remainder of 2023 of approximately $ 39 million to its pension plans, based on current tax and benefit laws.

However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest and currency rates.

Employer contributions of $ 60 million, were made to the pension plans during the six months ended June 30, 2022.

Employer contributions of $ 85 million were made to the pension plans during the nine months ended September 30, 2022.

During the second quarter of 2022, PMI received a cash refund of $ 123 million from one of its pension plans due to a change in discount rate and value of assets that resulted in the overfunding of the plan.

14 unchanged sentences

Additionally, as a result of the impairment test of non-amortizable intangible assets, PMI recorded a pre-tax impairment charge of $ 15 million for an in-process research and development project related to one of PMI's 2021 acquisitions.

These impairment charges were recorded within marketing, administration and research costs in the consolidated statements of earnings for the six months and three months ended June 30, 2023.

These impairment charges were recorded within marketing, administration and research costs in the consolidated statements of earnings for the nine months ended September 30, 2023.

The goodwill impairment charge is not deductible for income tax purposes.

16 unchanged sentences

Currency ( 13 ) ( 34 ) ( 9 ) 57 ( 121 ) 25 ( 95 )

Other — — — — 109 — 109

Balances, June 30, 2023 $ 1,418 $ 2,937 $ 499 $ 686 $ 13,311 $ 385 $ 19,236

Measurement period adjustments — — — — ( 2,386 ) — ( 2,386 )

Balances, September 30, 2023 $ 1,357 $ 2,835 $ 484 $ 672 $ 10,789 $ 372 $ 16,509

As discussed in Note 1.

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Notes to Condensed Consolidated Financial Statements

The decrease in goodwill was primarily due to the impairment discussed above, partially offset by currency movements and the measurement period adjustment to the Swedish Match preliminary purchase price allocation.

For further details on the Swedish Match acquisition, see Note 2, Acquisitions .

At June 30, 2023, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and Serbia, as well as the goodwill from the 2021 acquisitions of Fertin Pharma A/S and Vectura Group plc.

The decrease in goodwill was primarily due to the measurement period adjustments to the Swedish Match preliminary purchase price allocation (see Note 2, Acquisitions ), coupled with the impairment discussed above and currency movements.

At September 30, 2023, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and Serbia, as well as the goodwill from the 2021 acquisitions of Fertin Pharma A/S and Vectura Group plc.

and the preliminary purchase price allocation of Swedish Match AB, which was acquired in the fourth quarter of 2022.

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Details of other intangible assets were as follows:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in millions) Weighted-Average Remaining Useful Life Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net

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Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico, as well as the preliminary purchase price allocation associated with the Swedish Match acquisition in 2022, and PMI's business combinations in 2021 (primarily in-process research and development).

The increase since December 31, 2022 was due to currency movements of $ 87 million, partially offset by an impairment for an in-process research and development project related to one of PMI's 2021 acquisitions discussed above.

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2022, was due to currency movements of $ 9 million.

The change in the accumulated amortization from December 31, 2022, was mainly due to the 2023 amortization of $ 163 million, combined with currency movements of $ 2 million.

The amortization of intangibles for the six months ended June 30, 2023 was recorded in cost of sales ($ 44 million) and in marketing, administration and research costs ($ 119 million) on PMI's condensed consolidated statements of earnings.

Amortization expense for each of the next five years is estimated to be $ 322 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

The increase since December 31, 2022 was due to the measurement period adjustments to the Swedish Match preliminary purchase price allocation in the amount of $ 1,056 million (see Note 2, Acquisitions ), coupled with currency movements of $ 29 million, partially offset by an impairment for an in-process research and development project related to one of PMI's 2021 acquisitions discussed above.

The increase in the gross carrying amount of amortizable intangible assets from December 31, 2022, was due to the measurement period adjustments to the Swedish Match preliminary purchase price allocation in the amount of $ 2,233 million (see Note 2, Acquisitions ), partially offset by currency movements of $ 105 million.

The change in the accumulated amortization from December 31, 2022, was mainly due to the 2023 amortization of $ 368 million, partially offset by currency movements of $ 17 million.

The amortization of intangibles for the nine months ended September 30, 2023 was recorded in cost of sales ($ 43 million) and in marketing, administration and research costs ($ 325 million) on PMI's condensed consolidated statements of earnings.

Amortization expense for each of the next five years is estimated to be approximately $ 460 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

This estimate is subject to change based on the finalization of the preliminary purchase price allocation of the Swedish Match acquisition.

Additionally, the estimated future amortization expense could significantly increase following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc (see Note 2, Acquisitions ), the accounting for which will depend on the facts and circumstances effective May 1, 2024, when PMI will hold the full rights.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

2022 Impairment of Other Intangibles

In the third quarter of 2022, PMI recorded a pre-tax impairment charge of $ 112 million, reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

The impairment reduced the carrying values of developed technology definite-lived intangible assets in the Wellness and Healthcare segment to $ 308 million as of September 30, 2022.

The fair value of these intangible assets was primarily determined using the multi-period excess earnings method.

This impairment charge was recorded within cost of sales in the condensed consolidated statements of earnings for the three months and nine months ended September 30, 2022.

Financial Instruments:

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The gross notional amounts for outstanding derivatives at the end of each period were as follows:

(in millions) At June 30, 2023 At December 31, 2022

(in millions) At September 30, 2023 At December 31, 2022

Derivative contracts designated as hedging instruments:

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Notes to Condensed Consolidated Financial Statements

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022, were as follows:

The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022, were as follows:

Derivative Assets Derivative Liabilities

Fair Value Fair Value

(in millions) Balance Sheet Classification June 30, 2023 December 31, 2022 Balance Sheet Classification June 30, 2023 December 31, 2022

(in millions) Balance Sheet Classification September 30, 2023 December 31, 2022 Balance Sheet Classification September 30, 2023 December 31, 2022

Derivative contracts designated as hedging instruments:

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The fair value of PMI’s commodity contracts is determined by using the prevailing market spot and futures prices and the respective maturity dates of the instruments.

PMI’s derivative contracts have been classified within Level 2 at June 30, 2023 and December 31, 2022.

PMI’s derivative contracts have been classified within Level 2 at September 30, 2023 and December 31, 2022.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Six Months Ended June 30,

For the nine months ended September 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Nine Months Ended September 30,

Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives Statement of Earnings

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Notes to Condensed Consolidated Financial Statements

For the three months ended June 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Three Months Ended June 30,

For the three months ended September 30, 2023 and 2022, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions) For the Three Months Ended September 30,

Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives Statement of Earnings

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Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings.

As of June 30, 2023, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028.

As of September 30, 2023, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028.

The impact of these hedges is primarily included in operating cash flows on PMI’s condensed consolidated statements of cash flows.

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For derivative contracts that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in current earnings.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of June 30, 2023 was $ 915 million, and is recorded in long-term debt in the condensed consolidated balance sheets.

The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $ 81 million as of June 30, 2023.

The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of September 30, 2023 was $ 906 million, and is recorded in long-term debt in the condensed consolidated balance sheets.

The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $ 90 million as of September 30, 2023.

Hedges of Net Investments in Foreign Operations

PMI designates derivative contracts and certain foreign currency denominated debt and other financial instruments as net investment hedges, primarily of its Euro net assets.

For the six months ended June 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 24 million and $ 258 million, respectively.

For the three months ended June 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 23 million and $ 192 million, respectively.

For the nine months ended September 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 51 million and $ 525 million, respectively.

For the three months ended September 30, 2023 and 2022, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ 27 million and $ 267 million, respectively.

The premiums paid for, and settlements of, net investment hedges are included in investing cash flows on PMI’s condensed consolidated statements of cash flows.

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Hedging activity affected accumulated other comprehensive losses, net of income taxes, as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 2023 2022

2 unchanged sentences

Change in fair value 304 523 58 222

Gain/(loss) as of June 30, $ 408 $ 250 $ 408 $ 250

At June 30, 2023, PMI expects $ 174 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

Gain/(loss) as of September 30, $ 415 $ 421 $ 415 $ 421

At September 30, 2023, PMI expects $ 176 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months.

These gains are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.

9 unchanged sentences

Other Investments

A certain PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 184 million at June 30, 2023.

For the six months and three months ended June 30, 2023, the unrealized pre-tax gains (losses) on these investments were immaterial.

A certain PMI investment, which is comprised primarily of money market funds, has been classified within Level 1 and had a fair value of $ 216 million at September 30, 2023.

For the nine months and three months ended September 30, 2023, the unrealized pre-tax gains (losses) on these investments were immaterial.

Earnings Per Share:

Basic and diluted earnings per share (“EPS”) were calculated using the following:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 2023 2022

5 unchanged sentences

Weighted-average shares for diluted EPS 1,553 1,552 1,554 1,552

(1) Including rounding adjustment

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and therefore are included in PMI’s earnings per share calculation pursuant to the two-class method.

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Segment data were as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 2023 2022

23 unchanged sentences

PMI's net revenues by product category were as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 2022 2023 2022

25 unchanged sentences

• Impairment of goodwill and other intangibles – See Note 6.

Goodwill and Other Intangible Assets, ne t for the details of the $ 680 million goodwill and non-amortizable intangible assets impairment charges included in the Wellness and Healthcare segment for the six months and three months ended June 30, 2023.

Goodwill and Other Intangible Assets, net for the details of the $ 680 million goodwill and non-amortizable intangible assets impairment charges included in the Wellness and Healthcare segment for the nine months ended September 30, 2023.

For the nine months and three months ended September 30, 2022, PMI recorded an impairment charge related to definite-lived intangible assets of $ 112 million.

This charge was included in the Wellness and Healthcare segment.

For further details, see Note 6.

Goodwill and Other Intangible Assets, net .

• South Korea indirect tax charge – See Note 10.

Contingencies for details of the $ 204 million pre-tax charge included in the EA, AU & PMI DF segment results for the six months and three months ended June 30, 2023.

Contingencies for details of the $ 204 million pre-tax charge included in the EA, AU & PMI DF segment results for the nine months ended September 30, 2023.

• Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $ 80 million following the termination of a distribution arrangement in the Middle East.

This pre-tax charge was recorded as a reduction of net revenues in the condensed consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the six months ended June 30, 2023.

• Charges related to the war in Ukraine – See Note 3.

War in Ukraine for details of the $ 122 million and $ 80 million pre-tax charges in the Europe segment for the six months and three months ended June 30, 2022, respectively.

• Swedish Match AB acquisition accounting related item – See Note 2 .

Acquisitions for details of the $ 18 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish Match segment for the six months ended June 30, 2023.

• Asset impairment and exit costs – See Note 17.

Asset Impairment and Exit Costs for details of the $ 109 million pre-tax charge for the six months ended June 30, 2023, as well as a breakdown of these costs by segment.

• Charges related to the war in Ukraine – In the third quarter of 2023, PMI recorded a pre-tax charge of $ 19 million related to the war in Ukraine.

This charge was included in the condensed consolidated statements of earnings and was included in the Europe segment for the nine months and three months ended September 30, 2023.

For the nine months and three months ended September 30, 2022, PMI recorded a pre-tax charge of $ 128 million and $ 6 million, respectively.

These charges were included in the condensed consolidated statements of earnings and were included in the Europe segment for the nine months and three months ended September 30, 2022.

For further details, see Note 3.

War in Ukraine.

Philip Morris International Inc.

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

• Swedish Match AB acquisition accounting related item – See Note 2 .

• Asset impairment and exit costs – See Note 17.

Asset Impairment and Exit Costs for details of the $ 109 million pre-tax charge for the nine months ended September 30, 2023, as well as a breakdown of these costs by segment.

• Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement").

Under the terms of the agreement, PMI paid $ 140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties.

As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $ 140 million commensurate with the early termination of the pledge agreement.

The pre-tax charge was recorded in marketing, administration and research costs in the condensed consolidated statements of earnings during the nine months and three months ended September 30, 2023 and was included in the operating results of the following segments for both of these periods:

Europe ($ 62 million);

SSEA, CIS & MEA ($ 44 million);

EA, AU & PMI DF ($ 27 million);

and Americas ($ 7 million).

The third quarter 2023 results of PMI's Swedish Match segment include the impact of financial statement presentation reclassifications recorded on a year-to-date basis primarily associated with the alignment of accounting policies related to the company's post-acquisition evaluation of sales incentives, excise taxes and acquired contracts.

Net revenues were unfavorably impacted by these reclassifications, some of which are associated with the first and second quarter of 2023.

These reclassifications were not material to the condensed consolidated results of the current period or the period in which they relate.

Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect the characteristics of these products.

6 unchanged sentences

Net revenues related to wellness and healthcare products primarily consist of operating revenues generated from the sale of products primarily associated with inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's Wellness and Healthcare business, Vectura Fertin Pharma.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Contingencies:

22 unchanged sentences

However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

CCAA Proceedings and Stay of Tobacco-Related Cases Pending in Canada

4 unchanged sentences

RBH's financial results have been deconsolidated from our consolidated financial statements since March 22, 2019.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including September 29, 2023 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions.

As part of the CCAA proceedings, there is currently a comprehensive stay up to and including March 29, 2024 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions.

These proceedings are presented below under the caption “ Stayed Litigation — Canada .” Ernst & Young Inc.

132 unchanged sentences

The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”

The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of June 30, 2023, and June 30, 2022:

The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of September 30, 2023, and September 30, 2022:

Type of Case 1

Number of Cases Pending as of June 30, 2023 Number of Cases Pending as of June 30, 2022

Number of Cases Pending as of September 30, 2023 Number of Cases Pending as of September 30, 2022

Individual Smoking and Health Cases 48 38

75 unchanged sentences

The trial court found that the plaintiff’s father died as a result of lung cancer and COPD caused by his cigarette consumption.

On September 8, 2023, our subsidiary filed its appeal.

On September 25, 2023, the plaintiff filed an appeal challenging the damages amount determined by the court.

Philip Morris International Inc.

7 unchanged sentences

Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.

As of June 30, 2023, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 50 cases brought by individual plaintiffs in Argentina ( 31 ), Australia ( 1 ), Canada ( 2 ), Chile ( 13 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), compared with 40 such cases on June 30, 2022;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on June 30, 2022.

As of September 30, 2023, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 48 cases brought by individual plaintiffs in Argentina ( 32 ), Australia ( 1 ), Canada ( 2 ), Chile ( 10 ), the Philippines ( 1 ), Turkey ( 1 ) and Scotland ( 1 ), compared with 38 such cases on September 30, 2022;

• 9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on September 30, 2022.

The class actions pending in Canada are described above under the caption “ Smoking and Health Litigation — Canada.

4 unchanged sentences

Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.

As of June 30, 2023, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil ( 1 ), Canada ( 10 ), Korea ( 1 ) and Nigeria ( 5 ), compared with 17 such cases on June 30, 2022.

As of September 30, 2023, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil ( 1 ), Canada ( 10 ), Korea ( 1 ) and Nigeria ( 5 ), compared with 17 such cases on September 30, 2022.

The health care cost recovery actions pending in Canada are described above under the caption “ Health Care Cost Recovery Litigation — Canada.

47 unchanged sentences

Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of June 30, 2023, there were 5 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 4 ) pending against our subsidiaries, compared with 5 such cases on June 30, 2022.

As of September 30, 2023, there were 5 label-related cases brought by individual plaintiffs in Italy ( 1 ) and Chile ( 4 ) pending against our subsidiaries, compared with 6 such cases on September 30, 2022.

Public Civil Actions:

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Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.

As of June 30, 2023, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 1 such case on June 30, 2022.

As of September 30, 2023, there was 1 public civil action pending against our subsidiary in Venezuela ( 1 ), compared with 1 such case on September 30, 2022.

In a public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al.

11 unchanged sentences

In February 2013, our subsidiary answered the complaint.

Reduced-Risk Products

In Colombia, an individual filed a purported class action, Ana Ferrero Rebolledo v.

Philip Morris Colombia S.A., et al.

, in April 2019 against our subsidiaries with the Civil Court of Bogota related to the marketing of our Platform 1 product.

Plaintiff alleged that our subsidiaries advertise the product in contravention of law and in a manner that misleads consumers by portraying the product in a positive light, and further asserts that the Platform 1 vapor contains many toxic compounds, creates a high level of dependence, and has damaging second-hand effects.

Plaintiff sought injunctive relief and damages on her behalf and on behalf of two classes (class 1 - all Platform 1 consumers in Colombia who seek damages for the purchase price of the product and personal injuries related to the alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for exposure to the alleged illegal advertising).

Our subsidiaries answered the complaint in January 2020, and in February 2020, plaintiff filed an amended complaint.

The amended complaint modifies the relief sought on behalf of the named plaintiff and on behalf of a single class (all consumers of Platform 1 products in Colombia who seek damages for the product purchase price and personal injuries related to the use of an allegedly harmful product).

In June 2021, our subsidiaries answered the amended complaint.

The court conducted an evidentiary hearing on February 23, 2023.

On May 12, 2023, the court entered an order denying the plaintiff’s claims and granting our subsidiaries’ defenses.

The plaintiff did not appeal, and the matter is now closed.

Other Litigation

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The new act, which took effect in November 2017, substantially limits the amount of fines that Thailand could seek in these proceedings.

PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

the World Trade Organization and Thai law, and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court.

PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law, and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court.

Trial in the case began in November 2018 and concluded in December 2019.

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The appellate court affirmed the acquittal of the individual defendant.

Our subsidiary has appealed the decision to the Supreme Court of Thailand.

The Public Prosecutor has filed an appeal to the Supreme Court of Thailand challenging the dismissal of charges against the individual defendant and the amount of the fine.

Our subsidiary may file an appeal to the Supreme Court of Thailand, and its deadline to do so has been extended.

Thailand is required to refund any payment made by our subsidiary in excess of any fine assessed by the courts.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

The South Korean Board of Audit and Inspection (“BAI”) conducted an audit of certain Korean government agencies and the tobacco industry into whether inventory movements ahead of the January 1, 2015 increase of cigarette-related taxes by tobacco companies, including Philip Morris Korea Inc.

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Based on the decision issued by the Supreme Court of South Korea on July 13, 2023, management has concluded that an adverse outcome is probable.

Consequently, PMI recorded a non-cash pre-tax charge of $ 204 million in marketing, administration and research costs in the condensed consolidated statements of earnings for the three months and six months ended June 30, 2023, reflecting the full amount previously paid by PM Korea.

Consequently, in the second quarter of 2023, PMI recorded a non-cash pre-tax charge of $ 204 million in marketing, administration and research costs, reflecting the full amount previously paid by PM Korea.

A putative shareholder class action lawsuit, In re Philip Morris International Inc.

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On September 28, 2020, plaintiffs filed an amended complaint seeking to replead allegations relating to four non-clinical studies of PMI's Platform 1 product.

On September 10, 2021, the court granted defendant's motion to dismiss plaintiffs'

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

amended complaint in its entirety.

On September 10, 2021, the court granted defendant's motion to dismiss plaintiffs' amended complaint in its entirety.

Plaintiffs have filed an appeal with the U.S.

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Tariff Act and issued (a) a limited exclusion order against PMPSA, prohibiting, inter alia, the importation of Platform 1 product and infringing components;

and (b) a cease-and-desist order against Altria Client Services, LLC and its affiliate prohibiting, inter alia, sales of imported Platform 1 products.

and (b) a cease-and-desist order

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

against Altria Client Services, LLC and its affiliate prohibiting, inter alia, sales of imported Platform 1 products.

The ITC predicated the orders on its finding that Platform 1 blade products infringe two patents owned by a BAT affiliate.

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Oral argument was held on July 13, 2023.

On July 17, 2023, the Federal Circuit issued a decision summarily affirming PTAB’s decision to invalidate all challenged claims in one of the two patents underlying the ITC’s FD.

The Federal Circuit issued the mandate notifying the USPTO to record the invalidity of the challenged claims on August 23, 2023.

On September 14, 2023, the Federal Circuit issued a decision affirming the PTAB's decision finding certain claims in the second of the two patents underlying the ITC’s FD patentable.

PMPSA’s counterclaim in the Eastern District of Virginia challenging the validity of the remaining claims in the second of the two patents underlying the ITC’s FD is currently stayed.

On July 21, 2022, PMPSA filed a Request for Rehearing of PTAB's November 2020 decision not to institute review of certain claims in the second of the two patents underlying the ITC's FD;

6 unchanged sentences

the stayed action based on the second patent remains pending and is stayed pending a possible appeal by BAT of the revocation of that second patent by the European Patent Office.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

In September 2020, BAT’s affiliates commenced patent infringement and unfair competition proceedings, RAI Strategic Holdings, Inc., et al.

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Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in Japan.

On December 23, 2022, the Court dismissed BAT’s claims with respect to one of the two patents that it asserted, finding no infringement;

On December 23, 2022, the Court dismissed BAT’s claims with respect to one of the two patents that it

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

asserted, finding no infringement;

BAT filed an appeal of this dismissal.

On September 21, 2023, the court issued its judgment dismissing BAT's appeal regarding the Beard patent.

BAT's claim with respect to the second patent remains pending;

the next procedural hearing is currently scheduled to occur in the third quarter of 2023.

the final procedural hearing was held on September 6, 2023, during which the Court closed the proceedings and announced that the judgment would be rendered in the fourth quarter of 2023.

In November 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al.

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Plaintiffs filed an appeal of this decision.

The court postponed the next hearing in the infringement proceeding pending developments at the Korean Patent Office.

Following BAT’s unsuccessful correction action at the Korean Patent Office, the court held the first hearing in the appeal of the infringement proceeding on September 12, 2023.

An additional hearing in the appeal is currently scheduled to occur in the fourth quarter of 2024.

In July, 2021, PMPSA filed a claim at the High Court of Justice of England and Wales against BAT affiliates Nicoventures Trading Limited and British American Tobacco (Investments) Limited seeking revocation of the UK parts of two BAT European patents.

In March, the BAT affiliates stated that they would consent to revocation of one of the patents and filed a counterclaim against PMPSA and Philip Morris Limited seeking from the court a declaration that the remaining BAT affiliate patent is infringed by Platform 1 induction products, as well as damages and injunctive relief against the commercialization of the Platform 1 induction products in the U.K.

The trial took place from September 21-28, 2022, and a decision is awaited.

The trial took place from September 21-28, 2022.

On October 25, 2023, the Court issued its decision finding that the remaining BAT patent was invalid and not infringed.

Other patent challenges by both parties are pending in various jurisdictions.

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(“PMIBV”), a PMI subsidiary.

On October 17, 2020, Medicago had entered into a contribution agreement with the Canadian government (the “Contribution Agreement”) whereby the Canadian government agreed to contribute up to CAD 173 million (approximately $ 131 million on the date of signing) to Medicago, to support its on-going COVID-19 vaccine development and clinical trials ("First Stage"), and for the construction of its Quebec City manufacturing facility ("Second Stage", and together

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

with the First Stage, the “Project”).

On March 31, 2022, the Contribution Agreement was amended (the “Contribution Agreement Amendment”) to reflect an additional contribution from the Canadian government up to CAD 27 million (approximately $ 22 million on the date of signing) to Medicago for the Second Stage.

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PMIBV and Mitsubishi Tanabe Pharma Corporation (“MTPC”) are also parties to the Contribution Agreement and the Contribution Agreement Amendment as guarantors of Medicago’s obligations thereunder on a joint and several basis (“Co-Guarantors”).

The Co-Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago fails to do so (the "Repayment Obligations"), and could be responsible for the costs of Medicago’s other obligations (such as the achievement of specific milestones of the Project).

The Co-Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

fails to do so (the "Repayment Obligations"), and could be responsible for the costs of Medicago’s other obligations (such as the achievement of specific milestones of the Project).

The guarantees are in effect through March 31, 2026.

It is reasonably possible that PMI will be responsible for a portion of these costs and obligations.

The maximum amount of these obligations is currently non-estimable.

Prior to the release of PMIBV from its obligations as guarantor described below, it was reasonably possible that PMI could have been responsible for a portion of those costs and obligations.

On November 1, 2022, PMIBV transferred all of the shares it owned in Medicago to MTPC Holdings Canada Inc., the majority shareholder of Medicago.

MTPC assumed and agreed to perform all of PMIBV's obligations under the guarantees and to indemnify and save PMIBV harmless in respect of any and all claims related to the guaranteed obligations.

On February 3, 2023, PMI learned through a public announcement that a decision has been taken to cease all operations at Medicago and to proceed with an orderly wind up of Medicago’s business and operations.

As of June 30, 2023, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

On February 3, 2023, PMI learned through a public announcement that a decision had been taken to cease all operations at Medicago and to proceed with an orderly wind up of Medicago’s business and operations.

On September 27, 2023, the Canadian government released PMIBV from all its obligations as guarantor under the Contribution Agreement and the Contribution Agreement Amendment.

Income Taxes:

Income tax provisions for jurisdictions outside the United States of America, as well as state and local income tax provisions, were determined on a separate company basis, and the related assets and liabilities were recorded in PMI’s condensed consolidated balance sheets.

PMI’s effective tax rates for the six months and three months ended June 30, 2023 were 20.8 % and 24.7 %, respectively.

PMI’s effective tax rates for the six months and three months ended June 30, 2022 were 20.0 % and 20.3 %, respectively.

The effective tax rate for the six months ended June 30, 2023, was unfavorably impacted by the non-deductible Wellness and Healthcare goodwill impairment charge, partially offset by a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($ 96 million), while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in its condensed consolidated statements of stockholders' (deficit) equity.

The effective tax rate for the six months ended June 30, 2022, was favorably impacted by a reduction in deferred tax liabilities related to pension plan assets ($ 40 million), as well as a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($ 13 million).

PMI’s effective tax rates for the nine months and three months ended September 30, 2023 were 25.7 % and 33.2 %, respectively.

The effective tax rate for the nine months ended September 30, 2023, was unfavorably impacted by:

(i) an increase in deferred tax liabilities related to the unremitted earnings of PMI's Russian subsidiaries ($ 173 million) due to the unilateral suspension of certain Russian double tax treaties by the Russian authorities on August 8, 2023, with respect to certain payments including dividends;

(ii) the non-deductible Wellness and Healthcare goodwill impairment charge and (iii) a deferred tax cost for unrealized foreign currency gains on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($ 41 million), while the underlying pre-tax foreign currency movements fully offset in the condensed consolidated statements of earnings and were reflected as currency translation adjustments in its condensed consolidated statements of stockholders' (deficit) equity.

The effective tax rate for the three months ended September 30, 2023 was unfavorably impacted by an increase in deferred tax liabilities related to the unremitted earnings of PMI's Russian subsidiaries ($ 173 million) and a deferred tax cost for unrealized foreign currency gains on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($ 138 million).

PMI’s effective tax rates for the nine months and three months ended September 30, 2022 were 20.6 % and 22.0 %, respectively.

The effective tax rate for the nine months ended September 30, 2022, was favorably impacted by changes in earnings mix by taxing jurisdiction and by a reduction in deferred tax liabilities related to pension plan assets ($ 40 million), as well as a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($ 13 million).

For further details, see Note 14.

Related Parties - Equity Investments and Other .

PMI estimates that its full-year 2023 effective tax rate will be 20.5 % to 21.5 %, excluding discrete tax events.

PMI estimates that its full-year 2023 effective tax rate will be approximately 20.5 % to 21.5 %, excluding discrete tax events.

Changes in currency exchange rates, earnings mix by taxing jurisdiction or future legislative or regulatory developments may have an impact on the effective tax rates, which PMI monitors each quarter.

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HMS paid the assessment in the fourth quarter of 2021 in order to avoid potential penalties and filed an objection letter with the tax office in January 2022.

The amount paid was included in other assets in PMI’s condensed consolidated balance sheets at June 30, 2023 and December 31, 2022, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

The amount paid was included in other assets in

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

PMI’s condensed consolidated balance sheets at September 30, 2023 and December 31, 2022, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties.

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Short-term Borrowings:

At June 30, 2023 and December 31, 2022, PMI’s short-term borrowings and related average interest rates consisted of the following:

June 30, 2023 December 31, 2022

At September 30, 2023 and December 31, 2022, PMI’s short-term borrowings and related average interest rates consisted of the following:

September 30, 2023 December 31, 2022

(in millions) Amount Outstanding Average Rate Amount Outstanding Average Rate

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Long-term Debt:

At June 30, 2023 and December 31, 2022, PMI’s long-term debt consisted of the following:

(in millions) June 30, 2023 December 31, 2022

At September 30, 2023 and December 31, 2022, PMI’s long-term debt consisted of the following:

(in millions) September 30, 2023 December 31, 2022

dollar notes, 0.875 % to 6.375 % (average interest rate 4.433 %), due through 2044

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$ 42,914 $ 34,875

(a) Includes long-term bank loans at subsidiaries, as well as $ 29 million and $ 54 million in finance leases at June 30, 2023 and December 31, 2022, respectively.

The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities.

At June 30, 2023, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

(a) Includes long-term bank loans at subsidiaries, as well as $ 40 million and $ 54 million in finance leases at September 30, 2023 and December 31, 2022, respectively.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

At September 30, 2023, the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:

(in millions)

June 30, 2023

September 30, 2023

Level 1 $ 36,217

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Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.

As of June 30, 2023 and December 31, 2022, the € 5.5 billion (approximately $ 6 billion) term loan facility was fully drawn and remained outstanding.

As of September 30, 2023 and December 31, 2022, the € 5.5 billion (approximately $ 6 billion) term loan facility was fully drawn and remained outstanding.

The proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the payment of related fees and expenses.

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Debt Issuances

PMI's debt issuances in the first six months of 2023 were as follows:

PMI's debt issuances in the first nine months of 2023 were as follows:

(in millions)

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dollar notes (a) (e) $ 750 5.375 % May 2023 February 2033

dollar notes (f) $ 650 5.250 % September 2023 September 2028

dollar notes (f) $ 700 5.500 % September 2023 September 2030

dollar notes (f) $ 1,000 5.625 % September 2023 September 2033

(a) Interest is payable semi-annually, commencing in August 2023

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(e) These notes are a further issuance of the 5.375 % notes issued in February 2023

(f) Interest is payable semi-annually, commencing in March 2024

On February 17, 2023, PMI applied a portion of the net proceeds of the debt issuances to prepay $ 4.4 billion under its bridge facility, which represented all borrowings outstanding under the bridge facility.

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Acquisitions .

The remaining net proceeds of the February and May 2023 offerings have been or will be used for general corporate purposes.

The remaining net proceeds of the February and May 2023 offerings, as well as the September 2023 offering have been or will be used for general corporate purposes.

Revolving Credit Facilities:

At June 30, 2023, PMI's total committed revolving credit facilities were as follows:

At September 30, 2023, PMI's total committed revolving credit facilities were as follows:

(in billions)

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(3) On September 20, 2022, PMI entered into an agreement, effective September 29, 2022, to amend and extend the term of its $ 2.5 billion multi-year revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $ 2.3 billion.

At June 30, 2023, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

On September 20, 2023, PMI entered into an agreement, effective September 29, 2023, to amend and further extend the term to September 29, 2028.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

At September 30, 2023, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

In addition to the committed revolving credit facilities discussed above, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs.

These credit arrangements amounted to approximately $ 2.7 billion at June 30, 2023, and approximately $ 1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $ 146 million at June 30, 2023, and $ 295 million at December 31, 2022.

These credit arrangements amounted to approximately $ 2.6 billion at September 30, 2023, and approximately $ 1.9 billion at December 31, 2022.

Borrowings under these arrangements and other bank loans amounted to $ 221 million at September 30, 2023, and $ 295 million at December 31, 2022.

Accumulated Other Comprehensive Losses:

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(Losses) Earnings At At At

(in millions) June 30, 2023 December 31, 2022 June 30, 2022

(in millions) September 30, 2023 December 31, 2022 September 30, 2022

Currency translation adjustments $ ( 8,475 ) $ ( 8,003 ) $ ( 7,055 )

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Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the six months and three months ended June 30, 2023 and 2022.

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, are shown on the condensed consolidated statements of comprehensive earnings for the nine months and three months ended September 30, 2023 and 2022.

For additional information, see Note 2.

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Equity Method Investments:

At June 30, 2023 and December 31, 2022, PMI had total equity method investments of $ 1,247 million and $ 1,000 million, respectively.

At September 30, 2023 and December 31, 2022, PMI had total equity method investments of $ 1,238 million and $ 1,000 million, respectively.

Equity method investments are initially recorded at cost.

Under the equity method of accounting, the investment is adjusted for PMI's proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency translation adjustments.

The carrying value of our equity method investments at June 30, 2023 and December 31, 2022, exceeded our share of the investees' book value by $ 902 million and $ 750 million, respectively.

The carrying value of our equity method investments at September 30, 2023 and December 31, 2022, exceeded our share of the investees' book value by $ 881 million and $ 750 million, respectively.

The difference between the investment carrying value and the amount of underlying equity in net assets is mainly attributable to equity method goodwill, convertible debt instruments, and definite-lived intangible assets and other assets.

The difference related to the definite-lived intangibles and other assets at June 30, 2023 and December 31, 2022 of $ 34 million and $ 35 million, respectively, is amortized on a straight-line basis and is included in Equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings.

At June 30, 2023 and December 31, 2022, PMI received year-to-date dividends from equity method investees of $ 50 million and $ 9 million, respectively.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of June 30, 2023 had a carrying value of $ 377 million.

While as of June 30, 2023, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions.

The difference related to the definite-lived intangibles and other assets at September 30, 2023 and December 31, 2022 of $ 33 million and $ 35 million, respectively, is amortized on a straight-line basis and is included in Equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings.

At September 30, 2023 and December 31, 2022, PMI received year-to-date dividends from equity method investees of $ 57 million and $ 9 million, respectively.

PMI holds a 23 % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of September 30, 2023 had a carrying value of $ 351 million.

While as of September 30, 2023, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions.

For more information, see Note 3.

War in Ukraine .

Additionally, there was approximately $ 548 million of cumulative foreign currency translation losses associated with Megapolis Distribution BV reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of June 30, 2023.

PMI holds a 49 % equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”).

Additionally, there was approximately $ 588 million of cumulative foreign currency translation losses associated with Megapolis Distribution BV reflected in accumulated other comprehensive losses in the condensed consolidated statement of stockholders’ equity as of September 30, 2023.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

Holding ("MADAR Holding"), which manufactures and distributes under license some of PMI’s brands (SSEA, CIS & MEA segment).

PMI holds a 49 % equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”).

PMI holds an approximate 25 % economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51 % owned by EITA and 49 % by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), which manufactures and distributes under license some of PMI’s brands (SSEA, CIS & MEA segment).

In April 2023, PMI increased its equity ownership and acquired 66.73 % of Egyptian Investment Holding (“EIH”), a United Arab Emirates based company and as a result, acquired an approximate economic interest of 25 % in United Tobacco Company ("UTC").

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Transactions between PMI and RBH are considered to be related party transactions from the date of deconsolidation and are included in the tables below.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 313 million at June 30, 2023.

Unrealized pre-tax gain (loss) of $( 13 ) million ($( 10 ) million net of tax) on these equity securities was recorded in equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings for the six months ended June 30, 2023.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $ 378 million at September 30, 2023.

Unrealized pre-tax gain (loss) of $ 52 million ($ 41 million net of tax) on these equity securities was recorded in equity investments and securities (income)/loss, net on the condensed consolidated statements of earnings for the nine months ended September 30, 2023.

Other related parties:

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GPI also acts as contract manufacturer and distributor for IPM India.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

Financial activity with the above related parties:

PMI’s net revenues and expenses with the above related parties were as follows:

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

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(a) Net revenues exclude excise taxes and VAT billed to customers.

Philip Morris International Inc.

and Subsidiaries

Notes to Condensed Consolidated Financial Statements

PMI’s balance sheet activity with the above related parties was as follows:

(in millions) At June 30, 2023 At December 31, 2022

(in millions) At September 30, 2023 At December 31, 2022

Megapolis Group $ 394 $ 478

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When applicable, a servicing liability is recorded for the estimated fair value of the servicing.

The amounts associated with the servicing liability were no t material as of June 30, 2023 and June 30, 2022.

The amounts associated with the servicing liability were no t material as of September 30, 2023 and September 30, 2022.

Under the non-servicing arrangements, PMI does not provide any administrative support or servicing after the trade receivables have been sold to the unaffiliated financial institutions.

Cumulative trade receivables sold, including excise taxes, for the six months ended June 30, 2023 and 2022, were $ 6.1 billion and $ 5.6 billion, respectively.

Cumulative trade receivables sold, including excise taxes, for the nine months ended September 30, 2023 and 2022, were $ 9.4 billion and $ 8.4 billion, respectively.

PMI’s operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions.

The trade receivables sold that remained outstanding under these arrangements as of June 30, 2023 and June 30, 2022, were $ 683 million, and $ 656 million, respectively.

The trade receivables sold that remained outstanding under these arrangements as of September 30, 2023 and September 30, 2022, were $ 670 million, and $ 512 million, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

The difference between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of trade receivables within marketing, administration and research costs in the condensed consolidated statements of earnings.

The loss on sale of trade receivables was as follows:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

2023 $ 24 $ 14

The difference

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Notes to Condensed Consolidated Financial Statements

between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of trade receivables within marketing, administration and research costs in the condensed consolidated statements of earnings.

The loss on sale of trade receivables was as follows:

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2023 $ 37 $ 13

2022 $ 15 $ 7

Product Warranty:

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PMI accounts for its product warranties within other accrued liabilities.

At June 30, 2023 and December 31, 2022, these amounts were as follows:

(in millions) As of and For the Six Months Ended June 30, 2023 As of and For the Year Ended December 31, 2022

At September 30, 2023 and December 31, 2022, these amounts were as follows:

(in millions) As of and For the Nine Months Ended September 30, 2023 As of and For the Year Ended December 31, 2022

Balance at beginning of period $ 104 $ 113

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Asset Impairment and Exit Costs:

For the six months ended June 30, 2023, PMI recorded total pre-tax asset impairment and exit costs of $ 109 million related to restructuring activities.

For the three months ended June 30, 2023, PMI did no t record such charges related to restructuring activities.

These pre-tax charges were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the six months ended June 30, 2023.

For the six months and three months ended June 30, 2022, PMI did no t record any charges for asset impairment and exit costs related to restructuring activities.

During the six months and three months ended June 30, 2023, PMI recorded a pre-tax impairment charge on goodwill and other intangibles of $ 680 million within the Wellness and Healthcare segment.

For the nine months ended September 30, 2023, PMI recorded total pre-tax asset impairment and exit costs of $ 109 million related to restructuring activities.

These pre-tax charges were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the nine months ended September 30, 2023.

For the three months ended September 30, 2023, PMI did no t record such charges related to restructuring activities.

For the nine months and three months ended September 30, 2022, PMI did no t record any charges for asset impairment and exit costs related to restructuring activities.

For the nine months ended September 30, 2023, PMI recorded a pre-tax impairment charge on goodwill and other intangibles of $ 680 million within the Wellness and Healthcare segment.

For the nine months and three months ended September 30, 2022, PMI recorded a pre-tax impairment charge on other intangibles of $ 112 million within the Wellness and Healthcare segment.

For further details, see Note 6.

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As a result, PMI recorded pre-tax asset impairment and exit costs of $ 109 million.

This amount included contract termination costs for suppliers of $ 78 million, including $ 21 million of embedded finance lease terminations, which will be paid in cash.

This also included asset impairment costs of $ 31 million, primarily related to machinery and equipment, which were non-cash charges.

This amount included contract termination costs for suppliers of $ 78 million, including $ 21 million of embedded finance lease terminations, payable in cash.

This amount also included asset impairment costs of $ 31 million, primarily related to machinery and equipment, which were non-cash charges.

Philip Morris International Inc.

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PMI recorded the following pre-tax asset impairment and exit costs by segment:

(in millions) For the Six Months Ended June 30,

(in millions) For the Nine Months Ended September 30,

Contract termination charges:

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Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the six months ended June 30, 2023 was as follows:

The movement in exit cost liabilities for the nine months ended September 30, 2023 was as follows:

(in millions)

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Currency/other ( 8 )

Liability balance, June 30, 2023 $ 96

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023.

Liability balance, September 30, 2023 $ 36

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2024, with approximately $ 6 million expected to be paid in the remainder of 2023.

Philip Morris International Inc.

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Notes to Condensed Consolidated Financial Statements

The components of PMI’s lease cost were as follows for the six months and three months ended June 30, 2023 and 2022:

For the Six Months Ended June 30, For the Three Months Ended June 30,

The components of PMI’s lease cost were as follows for the nine months and three months ended September 30, 2023 and 2022:

For the Nine Months Ended September 30, For the Three Months Ended September 30,

(in millions) 2023 2022 2023 2022

2 unchanged sentences

Amortization of right-of-use assets 37 60 9 13

Interest on lease liabilities

Short-term lease cost 44 45 15 15

11 unchanged sentences

The associated payments are included in cash flows from operating activities within PMI's condensed consolidated statement of cash flows.

As of June 30, 2023 and December 31, 2022, the total amount due to suppliers participating in the SCF program was approximately $ 0.9 billion and $ 1.1 billion, respectively.

As of September 30, 2023 and December 31, 2022, the total amount due to suppliers participating in the SCF program was approximately $ 0.8 billion and $ 1.1 billion, respectively.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements